[Edaily Reporter Lim Yukyung ] As investor sentiment recovers following last month’s sharp decline in AI-related stocks, global investors are turning their attention to the Taiwanese stock market rather than the Korean market. This is because Taiwan—which is home to companies spanning the entire foundry (semiconductor contract manufacturing) and IT hardware supply chains—is viewed as a market with relatively lower stock price volatility compared to Korea, which is centered on memory semiconductors.

According to Bloomberg on the 11th (local time), foreign investors have made net purchases of $1.7 billion in the Taiwan stock market so far this month, while making net sales of $6.2 billion in the South Korean stock market.

Bloomberg interpreted this as indicating that, following last month’s sharp decline in AI-related stocks, investors are once again increasing their exposure to semiconductor and AI stocks while preferring markets with relatively lower volatility. Investors view the Taiwanese market as unlikely to experience the explosive rally seen in South Korea, but believe it offers more stable returns and relies less on leveraged trading.

Warren Chiang, a portfolio manager at Granham Mayo Van Otterloo (GMO), said, “Taiwanese companies are highly competitive,” adding, “While they will certainly be influenced by global economic trends, from a fundamentals perspective, this is not a market that carries excessive risk.”

Recently, Taiwan has begun to outperform South Korea in terms of returns on their respective benchmark indices. Since the start of this year, the KOSPI had consistently outperformed Taiwan’s Weighted Index, posting the highest returns in Asia. However, the trend reversed starting at the end of last month as selling pressure on AI-related stocks intensified. As of the 10th, the year-to-date gains stood at 55.1% for the Weighted Index and 46.2% for the KOSPI, widening the gap further.

Taiwan has also surpassed South Korea in earnings forecasts. According to Bloomberg data, earnings forecasts for companies included in the Weighted Index for the next 12 months were revised upward by 9.5% over the past month. During the same period, earnings forecasts for KOSPI-listed companies were revised upward by 7.4%. This marks the first time in about a year that Taiwan’s earnings forecast revision has outpaced South Korea’s.

Market analysts suggest that differences in the structure of the two countries’ semiconductor industries have driven the divergence in investor sentiment. While South Korea, with a high proportion of memory semiconductors centered on Samsung Electronics and SK Hynix, is heavily affected by fluctuations in market conditions, Taiwan’s strength lies in its diverse range of companies spanning the entire IT hardware supply chain—including foundry giant TSMC—as well as smartphone, server, and network equipment manufacturers.

The high proportion of leveraged investments, a characteristic of the South Korean stock market, was also cited as a burden. Hebe Chen, Chief Market Analyst at Vantage Global Prime, said, “The South Korean market has a high proportion of leveraged and speculative positions, so even a slight shift in investor sentiment can lead to significantly wider stock price fluctuations without any change in fundamentals.”

However, some analysts note that the Korean stock market has not lost its investment appeal. Following the sharp decline in AI-related stocks, the KOSPI has corrected more sharply than the Weighted Index, leaving it significantly undervalued at present. The KOSPI’s 12-month forward price-to-earnings ratio (P/E) recently fell to a record low of 5.1 times.

Isaac Tong, Chief Investment Officer of the Aberdeen Asian Income Fund, said, “Since the Taiwanese stock market has declined relatively less, the Korean market is more attractive based solely on current valuations.”

Bloomberg concluded that the future trajectory of the South Korean and Taiwanese stock markets—both key hubs for AI infrastructure—ultimately hinges on the success of the AI industry’s monetization efforts. The analysis suggests that whether the massive research and development (R&D) and capital expenditures invested in AI infrastructure translate into corporate earnings will be the key determinant of the stock markets’ direction in both countries.

Frank Benjimla, an equity strategist at Société Générale, said, “In the long term, the most important factor is the monetization of AI,” adding, “That is also the biggest long-term risk.”